6 U.S.C. § 395: Prohibition on contracts with…

Summary

The Secretary must not make a contract with a foreign company that became foreign by taking over most of a U.S. company, or with companies it owns. A foreign company is treated that way if, under a plan (even before, on, or after November 25, 2002), it buys substantially all the property of a U.S. corporation or the main business of a U.S. partnership; after the purchase at least 80 percent of the foreign company’s stock (by vote or value) is held by the former U.S. owners; and the whole company group does not have substantial business activities in the foreign country compared to its total business. When deciding this, stock held by members of the company group or stock sold in a related public offering is ignored. If the buy happens within a 4-year window that starts 2 years before the date the 80% ownership rule is met, it counts as part of a plan. Transfers meant mainly to avoid the rule are ignored. Domestic partnerships under common control are treated as one partnership. The Secretary will make rules to treat options, warrants, convertible debt, and similar rights as stock or not stock. “Expanded affiliated group” follows the tax code’s definition but uses “more than 50 percent” instead of “at least 80 percent.” “Foreign incorporated entity” means an entity treated as a foreign corporation under the tax code. The Secretary can waive the ban for a specific contract if needed for national security.

Title 6, §395

Domestic Security, Source: USLM XML via OLRC

(a)In general

The Secretary may not enter into any contract with a foreign incorporated entity which is treated as an inverted domestic corporation under subsection (b), or any subsidiary of such an entity.

(b)Inverted domestic corporation

For purposes of this section, a foreign incorporated entity shall be treated as an inverted domestic corporation if, pursuant to a plan (or a series of related transactions)—

(1)the entity completes before, on, or after November 25, 2002, the direct or indirect acquisition of substantially all of the properties held directly or indirectly by a domestic corporation or substantially all of the properties constituting a trade or business of a domestic partnership;

(2)after the acquisition at least 80 percent of the stock (by vote or value) of the entity is held—

(A)in the case of an acquisition with respect to a domestic corporation, by former shareholders of the domestic corporation by reason of holding stock in the domestic corporation; or

(B)in the case of an acquisition with respect to a domestic partnership, by former partners of the domestic partnership by reason of holding a capital or profits interest in the domestic partnership; and

(3)the expanded affiliated group which after the acquisition includes the entity does not have substantial business activities in the foreign country in which or under the law of which the entity is created or organized when compared to the total business activities of such expanded affiliated group.

(c)Definitions and special rules

(1)Rules for application of subsection (b)

In applying subsection (b) for purposes of subsection (a), the following rules shall apply:

(A)Certain stock disregarded

There shall not be taken into account in determining ownership for purposes of subsection (b)(2)—

(i)stock held by members of the expanded affiliated group which includes the foreign incorporated entity; or

(ii)stock of such entity which is sold in a public offering related to the acquisition described in subsection (b)(1).

(B)Plan deemed in certain cases

If a foreign incorporated entity acquires directly or indirectly substantially all of the properties of a domestic corporation or partnership during the 4-year period beginning on the date which is 2 years before the ownership requirements of subsection (b)(2) are met, such actions shall be treated as pursuant to a plan.

(C)Certain transfers disregarded

The transfer of properties or liabilities (including by contribution or distribution) shall be disregarded if such transfers are part of a plan a principal purpose of which is to avoid the purposes of this section.

(D)Special rule for related partnerships

For purposes of applying subsection (b) to the acquisition of a domestic partnership, except as provided in regulations, all domestic partnerships which are under common control (within the meaning of section 482 of title 26) shall be treated as I partnership.

(E)Treatment of certain rights

The Secretary shall prescribe such regulations as may be necessary to—

(i)treat warrants, options, contracts to acquire stock, convertible debt instruments, and other similar interests as stock; and

(ii)treat stock as not stock.

(2)Expanded affiliated group

The term “expanded affiliated group” means an affiliated group as defined in section 1504(a) of title 26 (without regard to section 1504(b) of such title), except that section 1504 of such title shall be applied by substituting “more than 50 percent” for “at least 80 percent” each place it appears.

(3)Foreign incorporated entity

The term “foreign incorporated entity” means any entity which is, or but for subsection (b) would be, treated as a foreign corporation for purposes of title 26.

(4)Other definitions

The terms “person”, “domestic”, and “foreign” have the meanings given such terms by paragraphs (1), (4), and (5) of section 7701(a) of title 26, respectively.

(d)Waivers

The Secretary shall waive subsection (a) with respect to any specific contract if the Secretary determines that the waiver is required in the interest of national security.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2004—Subsec. (a). Pub. L. 108–334, § 523(1), inserted before period at end “, or any subsidiary of such an entity”. Subsec. (b)(1). Pub. L. 108–334, § 523(2), inserted “before, on, or” after “completes”. Subsec. (c)(1)(B). Pub. L. 108–334, § 523(3), struck out “which is after November 25, 2002, and” after “beginning on the date”. Subsec. (d). Pub. L. 108–334, § 523(4), substituted “national” for “homeland”. 2003—Subsec. (d). Pub. L. 108–7 struck out “, or to prevent the loss of any jobs in the United States or prevent the Government from incurring any additional costs that otherwise would not occur” before period at end.

§395 Prohibition on Contracts with Corporate Expatriates

Summary

Title 6, §395

Notes & Related Subsidiaries

Editorial Notes

Amendments

Citations & Metadata